(1/25/2012) President Barack Obama's State of the Union Address, was
heavily laden with comments about solutions for the nation's economic
malaise, but housing got the short shrift.
Housing is, after all, a cornerstone of the American economy.
Shelter and its related costs account for 40 percent of the Consumer
Price Index (CPI), an index of consumer expenditures, according to the U.S. Bureau of Labor
Statistics, not to mention the jobs-creation aspect.
Obama's comments about the economy should have been 40 percent
housing.
When housing crumbled, the economy tumbled headlong into the Great
Recession, the greatest recession since the Great Depression.
Few would disagree - even the president - until housing recovers the economy will remain in the
tank.
"In 2008, the house of cards collapsed. We learned that mortgages had
been sold to people who couldn't afford or understand them. Banks had made
huge bets and bonuses with other people's money. Regulators had looked the
other way, or didn't have the authority to stop the bad behavior," said the
president, on Jan. 24, in his 2012 State of the Union Address.
"It was wrong. It was irresponsible. And it plunged our economy into a
crisis that put millions out of work, saddled us with more debt, and left
innocent, hardworking Americans holding the bag," he added.
Obama addressed several issues related to housing market, two directly
and a third related to a component of housing in the CPI: greater access to
cheaper mortgages, protection from mortgage fraud and energy costs.
Cheaper mortgages
"I'm sending this Congress a plan that gives every responsible homeowner
the chance to save about $3,000 a year on their mortgage, by refinancing at
historically low rates. No more red tape. No more runaround from the
banks...give those banks that were rescued by taxpayers a chance to repay a
deficit of trust," Obama said to rousing applause.
Good luck with that.
Great if you can get it.
The Obama Administration recently removed some obstacles to the original
Home Affordable
Refinance Program (HARP) to allow more homeowners to refinance and
benefit from low interest rates, but not every homeowner can benefit.
HARP is available only to those with loans sold to
Fannie Mae or Freddie Mac on or before May 31, 2009 and have current
loan-to-value (LTV) ratios above 80 percent, including homeowners who are
"underwater" and owe more than their home is worth.
Recent enhancements include:
• Removing the previous 125 percent loan-to-value (LTV) ceiling on
current mortgages backed by Fannie Mae and Freddie Mac. Before the
enhancement, only homeowners holding mortgages with a maximum 125 percent
LTV were eligible for a HARP refinance. A 125 percent LTV means your
mortgage is 125 percent of the value of your home. Now, how far you are
underwater won't disqualify you.
• Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees
for other borrowers.
• Waiving certain representations and warranties that lenders commit
to in making loans owned or guaranteed by Fannie Mae and Freddie Mac.
• Eliminating the need for a new property appraisal where there is a
reliable AVM (automated valuation model) estimate provided by the
Enterprises.
• Extending the end date for HARP until Dec. 31, 2013.
According to early information about Obama's State of the Union Address
comments, new legislation will allow HARP to cover not only Freddie and
Fannie mortgages, but those owned by private investors.
Unfortunately, even an Executive Order can't deliver a shot at
refinancing to "every responsible homeowner."
That's because the program is voluntary. Even if new legislation passes,
chances are, not all private investors will bite. Some existing federal loan
holders don't participate. In both cases, they just aren't that generous.
And given the current political climate, making such a program mandatory
for private lenders is virtually impossible.
Obama may ask Congress to let the Federal Housing Administration (FHA)
guarantee refinancings by underwater borrowers and have big banks pay a fee
to cover the costs.
Again, political infighting will make passing such legislation tough.
Also, while there is no maximum LTV on eligibility for any existing
Fannie or Freddie mortgage. There are other LTV requirements that won't help
"every responsible homeowner."
There is no LTV ceiling on the new loan, provided the new loan is a fixed
rate mortgage (FRM). If the new loan is an adjustable rate mortgage (ARM), the new loan can have no
more than a 105 percent LTV.
And once any underwater mortgage is refinanced, unless the lender reduces
the principal, the homeowner will remain under water.
Also only first mortgages and mortgages on primary residences remain
eligible. Homeowners don't get a break on second mortgages or mortgages on
second homes.
Finally, homeowners are out of luck for HARP if they have even one late
payment in the last six months or more than one late payment in the last 12
months.
It's doubtful legislation with make it through the current Congress truly
offering "every responsible homeowner" access to a refinancing deal.
Mortgage fraud
Obama also announced a special "Financial Crimes Unit" of federal
prosecutors and state attorneys general to heighten existing investigations
into financial activities blamed for the economic
crisis, as well as activities that have continued since the economy
tanked.
"We'll also establish a Financial Crimes Unit of highly trained
investigators to crack down on large-scale fraud and protect people's investments. Some financial
firms violate major anti-fraud laws because there's no real penalty for
being a repeat offender. That's bad for consumers, and it's bad for the vast
majority of bankers and financial service professionals who do the right
thing," Obama said.
The five largest U.S. mortgage lenders recently offered a $25 billion settlement
proposal that could make it easier for some struggling homeowners to
avoid foreclosure and have their mortgage balances reduced.
Also, 14 financial institutions are under federal orders to perform
independent reviews of an estimated 4.5 million foreclosures.
In both cases, the settlements are part of state and federal probes into
"robo-signing," "dual tracking," and other questionable procedures big banks
used after the crash to assembly-line process foreclosures.
New investigations could have the same state and federal officials go
after lending and securitization practices that led to the crash.
"...The rest of us are not bailing you out ever again. And if you're a
mortgage lender or a payday lender or a credit card company, the days of
signing people up for products they can't afford with confusing forms and
deceptive practices - those days are over," the president said.
Energy efficiency
In one other area that affects all residents of the home called Planet
Earth, Obama also addressed the need to move away from fossil fuels and into
the world of green energy.
"It's time to end the taxpayer giveaways to an industry (oil) that rarely
has been more profitable, and double-down on a clean energy industry that
never has been more promising. Pass clean energy tax credits. Create these
jobs," Obama said.
Follow the link to continue reading the related articles.
